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What caused the 1990-1991 recession?

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  • Carl E. Walsh

Abstract

This article decomposes U.S. GDP into components associated with major macroeconomic disturbances in order to identify the likely causes of the 1990 recession. Four types of disturbances--aggregate supply, aggregate spending, money demand and money supply--are identified in the empirical analysis. The results suggest the general slowing of the economy relative to trend prior to the actual downturn was due to restrictive monetary policy. Aggregate spending factors turned contractionary in mid-1990, however, and accounted for most of the subsequent decline in GDP during the rest of 1990.

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File URL: http://www.frbsf.org/publications/economics/review/1993/93-2_34-48.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1993)
Issue (Month): ()
Pages: 33-48

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Handle: RePEc:fip:fedfer:y:1993:p:33-48:n:2

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Keywords: Recessions ; Monetary policy - United States ; Economic conditions - United States;

References

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  1. Hafer, R W & Jansen, Dennis W, 1991. "The Demand for Money in the United States: Evidence from Cointegration Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 155-68, May.
  2. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1992. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  3. John V. Duca, 1992. "The case of the missing M2," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 1-24.
  4. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
  5. Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May.
  6. Hutchison, Michael & Walsh, Carl E., 1992. "Empirical evidence on the insulation properties of fixed and flexible exchange rates : The Japanese experience," Journal of International Economics, Elsevier, vol. 32(3-4), pages 241-263, May.
  7. Romer, Christina D., 1994. "Remeasuring Business Cycles," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 573-609, September.
  8. Matthew D. Shapiro & Mark W. Watson, 1989. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
  9. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December.
  10. Robert G. King, 1991. "Money and business cycles," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  11. Bennett T. McCallum, 1990. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
  12. Adrian Throop, 1991. "Consumer sentiment and the economic downturn," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar1.
  13. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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Citations

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Cited by:
  1. Menzie D. Chinn & Michael P. Dooley, 1997. "Monetary Policy in Japan, Germany and the United States: Does One Size Fit All?," NBER Working Papers 6092, National Bureau of Economic Research, Inc.
  2. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2009. "Deutschland im internationalen Konjunkturzusammenhang. Expertise im Auftrag der Bundesregierung," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75372.

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